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- 04 Nov 2013
- Research & Ideas
The Real Cost of Bribery
George Serafeim finds that the biggest problem with corporate bribery isn't its effect on a firm's reputation or the regulatory headaches it causes. Rather, bribery's most significant impact is its negative effect on employee morale. Closed for comment; 0 Comments.
- 03 Jul 2012
- Research & Ideas
HBS Faculty on Supreme Court Health Care Ruling
We asked three Harvard Business School faculty members, all experts in the health care field, to provide their views on various facets of one of this country's most important and complex problems. Open for comment; 0 Comments.
- 10 Jan 2012
- Working Paper Summaries
The Evolving Basis for Legitimacy of the World Trade Organization: Dispute Settlement and the Rebalancing of Global Interests
The WTO is reconfiguring people's relationships to goods and services by facilitating trade and the consequent conversion of goods and ideas into property, including ones previously gifted or kept local. Unsurprisingly, there has been considerable opposition from the losers in the free trade system and attendant challenges to the legitimacy of the WTO. Arthur Daemmrich argues that understandings of legitimacy change over time, especially as organizations like the WTO interact with organized interests, including member countries and outside NGOs. He provides a brief history of the WTO as an organizational entity managing the institution of free trade, and a case study of a lengthy international trade dispute between Brazil and the United States over agricultural subsidies generally and cotton subsidies in particular. At the WTO, he writes, an important shift has taken place from the strategy of building organizational legitimacy through expanding membership to institutional deepening via the dispute process. Thus the WTO has become one of a few key sites for working out how knowledge claims will be formulated, framed, and validated on the international level. Key concepts include: Through the development of a visibly deliberative approach to dispute resolution, the WTO has gained legitimacy even though decision-making remains in the hands of a narrow band of technical and economic experts. The WTO's own knowledge-making processes should facilitate deliberation without losing credibility. The WTO may soon be compelled to foster greater openness in the dispute adjudication process. A first step would be to accept more amicus briefs and perspectives from non-governmental organizations in dispute cases. At the WTO, it is of vital importance not so much to get the facts right (which indisputably is of significance to the credibility of any one ruling), but to design a knowledge-making and adjudication system with legitimacy worldwide. Closed for comment; 0 Comments.
- 28 Apr 2010
- Working Paper Summaries
Environmental Federalism in the European Union and the United States
Under what circumstances will individual states take the lead in passing the most stringent environmental regulations, and when will the federal government take the lead? When a state takes a leadership role, will other states follow? HBS professor Michael Toffel and coauthors describe the development of environmental regulations in the U.S. and EU that address automobile emissions, packaging waste, and global climate change. They use these three topics to illustrate different patterns of environmental policymaking, describe the changing dynamics between state and centralized regulation in the United States and the EU. Key concepts include: State governments have been an important source of policy innovation and diffusion for automobile emissions in the EU and the U.S., and packaging waste policies in the EU. In these cases, state authorities were the first to regulate, and their regulations resulted in the adoption of more stringent regulatory standards by the central government. With climate change policies, the EU and its member states have developed regulations in tandem, reinforcing each other. In the U.S., state governments developed more innovate regulations than the federal government for both climate change and packaging waste, but these policies have not substantially diffused to other states. Closed for comment; 0 Comments.
- 22 Apr 2010
- Working Paper Summaries
Audit Quality and Auditor Reputation: Evidence from Japan
High-quality external auditing is a central component of sound corporate governance, yet what determines audit quality? Douglas J. Skinner, of the University of Chicago Booth School of Business, and Suraj Srinivasan, of Harvard Business School, study the Japanese audit market, where recent events provide a powerful setting for investigating the effect of auditor reputation on audit quality absent litigation effects. Specifically, Skinner and Srinivasan analyze events surrounding the collapse of ChuoAoyama, the PricewaterhouseCoopers affiliate in Japan that was implicated in a massive accounting fraud at Kanebo, a large Japanese cosmetics company. Taken as a whole, the researchers' evidence provides support for the view that auditor reputation is important in an economy where the legal system does not provide incentives for auditors to deliver quality. Key concepts include: Auditors' reputation for delivering quality is extremely important. A substantial number of clients dropped ChuoAoyama as the extent of its audit quality problems became apparent, but before it became clear that the firm would be forced out of business. The events at ChuoAoyama and particularly the decision by the Japanese Financial Services Agency (FSA) to suspend the firm's operations can be seen as a watershed event in Japanese audit practice. The FSA used these events to send a message to the Japanese auditing community that the old ways of doing business would no longer be tolerated, and that it was serious about reforming audit practice. Closed for comment; 0 Comments.
- 24 Mar 2010
- Working Paper Summaries
Fiduciary Duties and Equity-Debtholder Conflicts
Managerial decisions influence the distribution of value between different parties. This can lead to conflicting interests among financial claimants, such as holders of equity and debt. The Credit Lyonnais v. Pathe Communications bankruptcy ruling of 1991 before the Delaware court—a case widely perceived to have created a new obligation for directors of Delaware‐incorporated firms—provides an interesting opportunity to assess whether and how equity-debt conflict affects firm behavior. HBS professor Bo Becker and Stockholm School of Economics professor Per Strömberg outline important changes in behavior after Credit Lyonnais. Key concepts include: The Credit Lyonnais duties are a prime example of how important the Delaware courts are, and how the differences between Delaware corporate law and other jurisdictions can be of significance. After the ruling, behavior changed for Delaware firms in the vicinity of bankruptcy, which enabled them to enter Chapter 11 in a healthier state, thus making bankruptcy resolution easier. Firms in distress sometimes have an incentive to undertake actions that hurt debt and benefit equity. Such behavior leads to indirect costs of financial distress, discouraging leverage and reducing overall firm value. A reduction in such behavior took place after the Credit Lyonnais ruling. Closed for comment; 0 Comments.
- 17 Dec 2009
- Working Paper Summaries
Integrity: Without It Nothing Works
"An individual is whole and complete when their word is whole and complete, and their word is whole and complete when they honor their word," says HBS professor Michael C. Jensen in this interview that appeared in Rotman: The Magazine of the Rotman School of Management, Fall 2009. Jensen (and his coauthors, Werner Erhard and Steve Zaffron) define and discuss integrity ("a state or condition of being whole, complete, unbroken, unimpaired, sound, in perfect condition"); the workability that integrity creates for individuals, groups, organizations, and society; and its translation into organizational performance. He also discusses the costs of lacking integrity and the fallacy of using a cost/benefit analysis when deciding whether to honor your word. Key concepts include: The personal and organizational benefits of honoring one's word are huge—both for individuals and for organizations—and generally unappreciated. We can honor our word in one of two ways: by keeping it on time and as promised, or if that becomes impossible, by owning up to the parties counting on us to keep our word in advance and cleaning up the mess our failure to keep our word creates in their lives. By failing to honor our word to ourselves, we undermine ourselves as persons of integrity, and create "unworkability" in our lives. Integrity is a necessary but not sufficient condition for maximum performance. There are unrecognized but significant costs to associating with people and organizations that lack integrity. Closed for comment; 0 Comments.
- 23 Sep 2009
- Working Paper Summaries
Operational Failures and Problem Solving: An Empirical Study of Incident Reporting
Operational failures occur within organizations across all industries, with consequences ranging from minor inconveniences to major catastrophes. How can managers encourage frontline workers to solve problems in response to operational failures? In the health-care industry, the setting for this study, operational failures occur often, and some are reported to voluntary incident reporting systems that are meant to help organizations learn from experience. Using data on nearly 7,500 reported incidents from a single hospital, the researchers found that problem-solving in response to operational failures is influenced by both the risk posed by the incident and the extent to which management demonstrates a commitment to problem-solving. Findings can be used by organizations to increase the contribution of incident reporting systems to operational performance improvement. Key concepts include: Operational failures that trigger more financial and liability risks are associated with more frontline worker problem-solving. By communicating the importance of problem-solving and engaging in problem-solving themselves, line managers can stimulate increased problem-solving among frontline workers. Even without managers' regular engagement in problem-solving, communication about its importance can promote more problem-solving among frontline workers. By explaining some of the variation in responsiveness to operational failures, this study empowers managers to adjust their approach to stimulate more problem-solving among frontline workers. Closed for comment; 0 Comments.
- 28 Feb 2008
- Working Paper Summaries
Colonial Land Tenure, Electoral Competition and Public Goods in India
How is the impact of historical institutions felt today? This comparative analysis by Banerjee and Iyer highlights the impact of a specific historical institution on long-term development, specifically the land tenure systems instituted during British colonial rule. The paper compares the long-term development outcomes between areas where controls rights in land were historically given to a few landlords and areas where such rights were more broadly distributed. The paper also documents the impact of these differing historical institutions on political participation and electoral competition in the post-colonial period. Key concepts include: There are large differences in the development trajectories of areas that had different land tenure systems under British colonial rule. In particular, areas that were put under the control of landlords lag behind in the provision of public goods such as schools and roads compared with areas in which control rights in land were given to small cultivators. These differences are discernible even four decades after the end of colonial rule, and three decades after the landlord-based land tenure systems were officially abolished. Political participation and literacy levels are lower in landlord areas, but these differences are not sufficient to explain the differences in public goods provision. Closed for comment; 0 Comments.
- 26 Feb 2007
- Research & Ideas
The Power of the Noncompete Clause
Noncompete clauses seem nearly universal—and not just in technology companies. But the effect is especially strong on specialist and "star" inventors, according to new research by Harvard Business School's Matt Marx, Deborah Strumsky, and Lee Fleming. Marx reflects on the business and career implications in this Q&A. Key concepts include: Noncompete clauses may be ubiquitous or nearly so, particularly in venture-funded companies, but not everyone is affected identically by noncompetes. Fundamentally, noncompetes are a form of monopoly. Just as a patent allows a monopoly on a technique or tool for a limited amount of time, a noncompete (if enforced) affords a temporary monopoly of sorts on a person. In Michigan, inventors whose patents are highly cited in other patent applications were less likely to change jobs following a change in the state law. The effect for "specialist" inventors was even stronger. Star or specialist inventors wishing to explore career opportunities may need to look outside a state that enforces noncompetes. From an employer's perspective, keep in mind that noncompetes are far from ironclad. Closed for comment; 0 Comments.
- 02 Feb 2007
- Working Paper Summaries
Do Employment Protections Reduce Productivity? Evidence from U.S. States
Business leaders and policymakers often claim labor market rigidities reduce productivity and competitiveness by altering production choices from their unconstrained best. These theories are tested using the adoption of employment protection regulations by U.S. state courts over the last three decades. Consistent evidence is found following the introduction of the employment regulations that 1) firm production choices are altered, 2) firm employment turnover declines, and 3) firm productivity declines. Entrepreneurship rates also decline in the states after the court decisions. The interpretation of the results, however, is somewhat clouded by very large employment growth that follows the regulations too. Key concepts include: Employment protection regulations lead to reductions in firm employment changes. These regulations are also associated with lower firm productivity and entry rates, consistent with the regulations distorting production choices. These results require further verification as the employment growth following the regulations appears implausibly large. Closed for comment; 0 Comments.
- 01 Feb 2007
- Working Paper Summaries
Noncompetes and Inventor Mobility: Specialists, Stars, and the Michigan Experiment
Two years ago, Microsoft and Google wrangled publicly when Google hired away a star Microsoft employee who had signed an agreement not to compete against Microsoft for one year after leaving the company. Managers enjoy a love/hate relationship with such "noncompete" covenants depending on whether they are gaining or losing talent. This study, which looks at Michigan's inadvertent reversal of its enforcement policy in the mid-1980s, is the first to apply longitudinal analysis to the question of noncompete enforcement. Given the importance of mobility for knowledge spillovers and entrepreneurship, the evidence has implications for day-to-day behavior, careers, business, and policy. Key concepts include: "Stars"—highly cited and specialist inventors—experienced significantly less career mobility once noncompetes began to be enforced. The networks of small companies so crucial to Silicon Valley's growth would be less likely to develop in regions that enforce noncompetes. Policy planners must decide when the interests of incumbent firms outweigh those of individual careers and possibly regional development. Closed for comment; 0 Comments.
- 07 Aug 2006
- Research & Ideas
Whatever Happened to Caveat Emptor?
In many world nations, consumers enjoy vast protections that are relatively new on the scene. Why the rapid rise in consumer protectionism? Why do these efforts vary from country to country? A discussion with professor Gunnar Trumbull on his new book, Consumer Capitalism. Key concepts include: Until the 1960s, consumers enjoyed few regulatory protections from faulty products. The United States led the change. Consumer protections, which vary in scope and intent from country to country, influence product design. Germans favor quality; the French, innovation. Consumers benefit from these protections, but as part of a larger trend toward modernization, something in the social fabric is lost. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
What’s Law Got to Do with It: A Systems Approach to Management
Mainstream management theory often ignores the influence of law on the competitive environment and on the resources of the firm. The author attempts to spark greater academic interest in the legal aspects of management by proposing a systems approach to law and management "that explains how law affects the competitive environment, the firm's resources, and the activities in the value chain." Key concepts include: There is a variety of legal tools that managers can use as part of their market strategy to increase realizable value and manage risk. Firms operate within a broader social context, which can affect both how existing laws are interpreted and applied and how laws are changed in the future. The use of law to create competitive advantage is a wide-open area for academic study. Closed for comment; 0 Comments.
- 01 May 2006
- Research & Ideas
What Companies Lose from Forced Disclosure
Increased corporate financial reporting may benefit many parties, but not necessarily the companies themselves. New research from Harvard Business School professor Romana Autrey and coauthors looks at the relationship between executive performance and public disclosure. Closed for comment; 0 Comments.
- 27 Feb 2006
- Research & Ideas
When Rights of First Refusal Are a Bad Deal
Contracts that include a right of first refusal usually benefit the holder of that right. But not always. New research by professor Alvin E. Roth and colleague Brit Grosskopf explains when it's wise to say no. Closed for comment; 0 Comments.
- 12 Dec 2005
- Research & Ideas
Using the Law to Strategic Advantage
Used proactively, corporate legal departments can give you a strategic advantage, argues HBS professor Constance Bagley. It's time for a new relationship between managers and legal. Closed for comment; 0 Comments.
- 24 Oct 2005
- Research & Ideas
IPR: Protecting Your Technology Transfers
Countries are adopting stronger intellectual property rights to entice international corporate investment. But who really benefits from IPR? Should multinationals feel secure that their secrets will be protected? A Q&A with professor C. Fritz Foley. Closed for comment; 0 Comments.
- 17 Nov 2003
- Research & Ideas
Lessons from a Nasty Trade Dispute
Even if the World Trade Organization rules in favor of your country’s government, it may not mean the end of a business dispute. HBS professors Rawi Abdelal and Laura Alfaro explain why. Closed for comment; 0 Comments.
Standard-Essential Patents
Standards play a key role in many industries, including those critical for future growth. Intellectual property (IP) owners vie to have their technologies incorporated into standards, so as to collect royalty revenues (if their patents dominate some of the functionalities embodied in the standard) or just to develop a competitive edge through their familiarity with the technology. However, it is hard to know in advance whether patents are complements or substitutes, i.e., how essential they are. Thus a major policy issue in standard setting is that patents that seem relatively unimportant may, by being included into the standard, become standard-essential patents (SEPs). In an attempt to curb the monopoly power that the standard creates, most standard-setting organizations (SSOs) require the owners of patents covered by the standard to grant licenses on fair, reasonable and non-discriminatory (FRAND) terms. Needless to say, such loose price commitments can lead to intense litigation activity. This paper constitutes a first pass at a formal analysis of standard-essential patents. It builds a framework in which essentiality and regulation functions can be analyzed, provides a precise identification of the inefficiencies attached to the lack of price commitment, and suggests a policy reform that restores the ex-ante competition called for in the literature and the policy debate. Key concepts include: Standards transform inessential patents into standard-essential ones. Price discussions within the standard setting process run the risk of expropriation of IP holders, as even balanced SSOs will "blackmail" IP owners to accept low prices in exchange for their functionalities' being selected into the standard. The ability to engage in forum shopping enables IP owners to shun SSOs that force them to charge competitive prices. This suggests imposing mandatory structured price commitments on SSOs. Closed for comment; 0 Comments.